India may see ~2-3 trn equity supply in FY22
IPOS likely to contribute 40% to this record capital raise, says Jefferies
The Indian equity markets that are trading near all-time high levels may see a record ~2-3 trillion ($30–40 billion) worth of equity supply in FY22, with 40 per cent of this being raised via initial public offerings (IPOS), though the actual quantum of the corporate equity paper supply will depend on institutional flows, suggests a note from Jefferies.
“Maturing of India's internet space, the government's disinvestment programme, and traditionally large financial issuers will likely dominate, but around 1 per cent of market-cap, the supply is within limits. Our analysis suggests that net equity supply had easily exceeded 1 per cent in strong bull markets in the past and a similar number now can imply net/gross equity issuance of $30-40 billion can be absorbed,” wrote Mahesh Nandurkar, managing director at Jefferies in a report coauthored with Abhinav Sinha.
The net (of buybacks, adjusted for promoter contribution to rights) equity supply in FY21, according to Jefferies, was estimated at $24 billion — a three-year high.
Over the past decade, the contribution of IPOS to equity fundraising around 27 per cent has been muted, Jefferies said. India's maturing internet space, however, can change this trend, with two pig players — Zomato and Paytm — looking to list this financial year.
Policybazaar, India’s largest online insurance company, too, is gearing up for an IPO and plans to raise ~4,000 crore via an IPO, reports suggest. Zomato has already filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) and looks to raise ~8,250 crore, or over $1.1 billion, via the IPO route. “The company will be utilising part proceeds to fund organic and inorganic growth. The rest will be used for general corporate purposes. The IPO will be a test of Indian investors’ appetite for unicorns,” said Shobit Singhal of Anand Rathi in a recent note.
Paytm, on the other hand, aims to raise $3 billion (around ~22,000 crore) later this year. If successful, this may be the biggest IPO by an Indian company, breaking Coal India’s 2010 record of ~15,475 crore.
Financial sector
The financial sector, according to Jefferies, has been the largest equity raiser historically, contributing 47-62 per cent of total supply over FY1821. While there will be equity issuances in other sectors as well, such as infrastructure and real estate, some of these, Jefferies feels, may be subject to reopening/capex-cycle uptick getting underway.
“The financial sector fundraising may rise to $1320 billion with contributions from state-owned banks ($57 billion), large private banks ($3-4 billion), and smaller private banks/non-banking financial companies ($3-4 billion) may be back in the market. New listings — including some small finance banks, microfinance and insurancerelated — companies may raise $2-4 billion, as well,” Nandurkar and Sinha said.